Drug companies are indeed looking at ‘substantial’ price cuts, HHS Secretary Azar tells lawmakers

President Donald Trump has previously said some drugmakers will announce "voluntary massive drops" in drug prices, and HHS Secretary Alex Azar just assured lawmakers that pharmas are indeed considering "substantial and material" price cuts.

"There are actually several drug companies that are looking at substantial and material decreases of drug prices in competitive classes, and actually competing with each other and looking to do that," Azar said before a Senate health committee hearing Tuesday.

Azar didn’t identify which companies are considering these price cuts, but his words are in line with President Trump’s comment two weeks ago that some big pharmas would offer "voluntary massive drops in prices."

Reassuring lawmakers of drug companies’ willingness to cut prices, Azar, a former executive with Eli Lilly, soon pointed the finger at the drug price middlemen: pharmacy benefit managers (PBMs).

In what he called "the perversion of the system," Azar said PBMs and benefit consultants—not drug companies—are the "biggest hurdle holding things back." Because PBMs will make more money if companies charge higher sticker prices to offer larger rebates and discounts, these middlemen are more financially driven to provide favorable coverage to drugs priced higher, Azar said.

He said pharmas are working with PBMs to make sure "they’re not discriminated against," or that they’ll not be threatened with removal from favorable formulary stands, for decreasing list prices.

"I think the system will work its way out," said Azar. "I think that the first couple of drug companies that reduce price, this whole system will flip on its head and have to be redone."

"If I were a drug company executive I wouldn't want to be beaten by my competitor over that line because the first to do—the first companies to do this are going to win," he added.

Azar has previously warned pharma companies that any that take a price increase not justified by inflation or new evidence in clinical benefit might face the fury of an unpredictable president. He has also said Trump "will be interested in hearing which companies lowered their prices and took other actions to support the changes we want to make."

Despite Azar’s testament and increased pricing pressure the industry is facing, drug companies actually rarely cut prices, at least not list prices. After Trump made the announcement, Sen. Elizabeth Warren, D-Mass., said she had sent letters to several Big Pharmas, but none has cut list prices.

What they have done in the past is provide a price-hike ceiling that’s often under the 10% cap that has been trendy in pharma in recent years. When they do post price declines, it’s often for net prices: the real price after rebates and discounts. Sanofi recently reported a net price decline of 8.4% in 2017, and Johnson & Johnson and Merck posted drops of 4.6% and 1.9% last year.

In fact, biopharmas are more inclined to jack up prices, especially for their top-selling drugs when there’s less competition. For example, Wells Fargo analyst David Maris previously found that from Dec. 15 to Jan. 3, AbbVie hiked the sticker of its megablockbuster Humira by 9.7%. On the flip side, Gilead, once vilified for its $84,000-per-course Sovaldi, has succumbed to competitive pressure and said the pricing of all hepatitis C treatments is more in line with AbbVie’s $26,400 per course for Mavyret.